Management of Domestico plc has undertaken some investigations relating to the production of a new product the Frapper. According to market research undertaken, the Frapper is somewhat a $$fad$$ product and as such the company should expect high demand for a limited marketable period. The research work undertaken suggests that sales demand for the Frapper is expected to cease after five years. The cost of this market research is $75,000$ and is payable on $31$st December $2023.$

Annual demand for the Frapper is expected to be $1,000,000$ units in $2024,$ increasing at a rate of $20\%$ p$.$a$.$ for the next $3$ years. The final year sales demand is expected to fall to the $2025$ level. A selling price of $63$ per unit has been set and variable production costs per unit include $2\mathrm{.}5$ kgs of raw material and $4$ hours of unskilled labour. The raw material is constantly used in the production of several existing products and hence there is plenty in inventory at a cost of $5/$kg$.$ The current purchase price has fallen to $4/$kg$.$ The unskilled labour would be hired for the duration of the production period at $10$ per hour.

In addition, production of each unit of the Frapper will also require $1\mathrm{.}5$ hours of specialist finishing time and $20$ specialist operatives can be deployed from existing production lines, where they produce a contribution of $3$ per hour. The current salary for each specialist operative is $30,000$ p$.$a$.$

Incremental fixed production overheads of $8\mathrm{.}4$ million per year will be incurred and central administrative overheads of $2\mathrm{.}6$ million p$.$a$.$ would be charged to the production of the Frapper.

Sales and operating expenses are assumed to occur on the last day of the relevant year.

Existing equipment may be used in the production of the Frapper. The equipment is currently not in use and is intended to be sold at the end of this year for an estimated $800,000.$ The equipment was originally purchased and first used in $2018$ for $4\mathrm{.}5$ million and will need to be modified now at a cost of $2,000,000,$ payable at the beginning of next year. The modification expenditure is considered capital expenditure for tax purposes.

In addition to the modification, the equipment would require a relatively high level of maintenance, enabling the equipment to operate effectively until the end of $2028,$ when it would be scrapped for zero sales proceeds. The annual maintenance costs are estimated to be $900,000$ for the first year and is expected to fall by $6\%$ per year in nominal terms.

Production the Frapper will require the support of working capital equal to $5\%$ of the annual variable production costs $($not including finishing time$).$ This would need to be in place by the start of each year and released at the end of $2028.$

All operating cash inflows and outflows including fixed costs are expected to increase each year due to general inflation. Except for the expected disposal proceeds of equipment and maintenance costs, all of the financial information given above is expressed in terms of current $2023$ prices. $1.$ It is nearing the end of the last quarter of $2023$ and the company prepares accounts with a financial year ending $31$st December.

$2.$ Company earnings are subject to $19\%$ corporation tax, payable on a current year basis.

$3.$ Land and buildings qualify for $3\%$ reducing balance industrial buildings allowances whilst plant, equipment and machinery are subject to $$short$-$life$$ asset election and attract $25\%$ reducing balance tax allowances. Capital allowances can be claimed in the year of acquisition and every subsequent year of ownership except for the last year where a balancing allowance can be claimed or there will be a balancing charge to the company, unless otherwise specified in the particulars of each case.

$4.$ All operating cash flows $($revenues and operating costs$)$ are quoted at current $2023$ prices and subject to annual inflation, unless otherwise specified in the particulars of each case.

$5.$ General rate of inflation is expected to be $4\%$ p$.$a$.$ for each of the next two years and $2\%$ p$.$a$.$ in each subsequent year.

$6.$ Management consider the company$$s existing after$-$tax cost of capital of $18\%$ is an appropriate rate to appraise all capital investments $($unless otherwise specified$).($This is for a project that I have to submit for, all I need to do is make a statement of cashflow and working note on how i got the valued$).$